Repeated efforts to revive and resuscitate the dormant Doha Development Round having failed, more and more nations are resorting to the bilateral or multi-lateral trade agreement, outside the canvas of the WTO. A hard and cold look at the various attempts that have been made from time to time on revive DDR does not offer any hope, which is why more and more bilateral or multi-lateral trade agreements are being signed. But first, our own final word on the possibility of revival of Doha Development Round (DDR).
Will DDR Revive?
Even an optimist die-hard would not think so. Why? Its clue was given in The Stitch Times in October, 2009 issues Cover Story: Doha Development Round Staging a Comeback, when the views of important players in the global apparel trade were reflected, showing a wide variance which was natural. Not only the DDR has been rendered more complex than the previous Uruguay Round as topics have increased threefold, while he number of members has increased five times in World Trade Organization, but also the important players have stuck to their old guns. Ron Kirk, the US Trade Representative was more forthcoming when he said, We believe that it is imperative to look at other alternatives inclusive of continuing our multilateral agreements, specifically the sustained bilateral acts of negotiations that will bring clarity. We think it is necessary to do, so that all the parties can have a clear picture of what to gain from the Doha Round. I think that was amplified somewhat here today by reservations of some nations that have been reluctant to talk.
Brazils External Affairs Minister, Celso Luiz Nunes Amorim, another important player, was not in agreement with the USTR. On the question of using bilateral engagements within the Doha Round for additional market access, he said, I have been in this endgame for a long time. We have been engaging in bilaterals all the time it is normal, but it cannot replace he multi-lateral process .If we want to change to a bilateral process, we can be sure that the result will be much worse from the point of view of developing countries. China, too objected to introduction of bilaterals, as proposed by the US and a senior Chinese trade official said that while his country was ready to clarify on market access issues, it was opposed to negotiating these during the bilateral meetings. Indias Minister of Commerce Anand Sharma disagreed with several others, when he said, In some quarters, it has been suggested that most issues have been settled and we are almost in the endgame. However, if we look at the text modalities on agriculture and non-agriculture market access (NAMA) alone, it would be apparent that are still gaps and a number of unresolved issues.
Apparently, DDR does not appear to aspire confidence and the nations, including India, are forced into looking for alternatives. Now what are the alternatives?
Probably, the answer is the Regional Trade Agreements (RTAs), which have become, in recent years, a very prominent feature of the Multilateral Trading System (MTS).There are some 220+ such agreements in existence today, and they are expected to scale up to 400 by the end of present decade.
The wide and rapid acceptability of RTAs as the next best alternative to WTOs multi-lateralism by most of the countries did set India thinking on the immediate desirability of such RTAs being entered into. In order to make up the shortfall that India felt has occurred, there was a flurry of activities leading to negotiating RTAs with different countries or groupings. The Ministry of Commerces list of RTAs include 19 such agreements that constitutes Indias current engagements. This included the recently concluded agreements with the 10-nation ASEAN and South Korea. The other prospective trade partners with whom negotiations are on for RTAs include Japan, the European Union, the Gulf Co-operation Council and the European Free Trade Area, besides the US. In addition, India is also pursuing such negotiations with Australia, Canada and New Zealand. These are in addition to our existing RTAs with Thailand, Sri Lanka and Singapore.
When all those trade agreements are signed over the next two to three years, India would have agreed on a reciprocal basis to eliminate tariffs on 85-90% of products with countries that account for over 70% of Indias global trade.
Indias Objective of a RTA
But before we rush into the competitive race for entering into more and more RTAs, we need to ponder as to what we are trying to achieve. We need to review the benefits that have accrued to India from the RTAs
We have already entered into. In our case, the RTAs entered into and implemented by us have, so far, resulted in widening our negative trade balance with the respective partners. The RTAs with Singapore, Thailand and Sri Lanka are the glaring examples of India making a self goal. It is not going to be any different in case of our RTAs with ASEAN and BIMSTEC, which are close to being finally inked.
Before entering into trade agreement with any other country, India should identify its purpose and objective of such an arrangement and what it seeks to fulfil and achieve by any proposed agreement. We look nave in our decision to enter into trade agreements with Thailand, Sri Lanka and Singapore as instead of our taking any advantage out of such agreements, we have ended up with building up negative balance of trade. India should emulate the example of the US, which has entered I not the largest number of trade agreements mostly with the developing or least developed countries and gained massively out of these agreements. Its RTAs/FTAs with Caribbean, South American, North American and African countries covered substantially all the trade as required under the WTO norms, but in practice, these were very clearly textile-centric and on the surface showed that as a leading, benevolent economy of the world, US is allowing duty-free import of apparels manufactured in these regions, but when read with the condition that such duty-free imports would be of such apparels as have been manufactured out of raw-materials purchased from the US, their real objective comes out clearly. The European Union also adopted the same policy of profiting even from the developing or least developed countries by allowing conditional duty-free imports of their products. This did help both the US and the EU to substantially increase their exports of yarn and fabrics.
Do Indian RTAs Make Good Economic Sense?
While it is true that entering into a trade agreement does increase trade between the trading partners, but one really needs to keep a close watch whether the increase in trade is in terms of increase in our exports or imports. What kind of countries we are entering into trade agreements with? Do they have substantial markets ? Will our products stand the local competition? On the other hand, will the duty-free products of the countries with whom we are entering into preferential trade agreement not damage our indigenous industry and lead to their closure or at least shrinkage? Have we ever undertaken that kind of exercise, which is an absolute necessity to make a good bargain out of the trade agreement. Our experience in respect of the countries with whom we have entered into such agreement has been disappointing if not dismal. We seem to be rushing in where angels may fear t o tread.
There is yet another aspect to it. We must also take in to account the number and kinds of trade agreements that our proposed trade agreement partner has already entered into with other countries, with whom we would find very difficult to compete. Entering into agreement with such countries can land our exports in serious and stiff competition, which we may not be able to withstand. Trade agreement with ASEAN countries is a good example in this case. They have already entered into a number of trade agreements with various countries including China. Do we really stand a chance of any competition with China in third countries, where both the Chinese and Indian products vie for a pie in the import markets of these countries? ASEAN countries are not developed and rich countries, where niche products from India could command a big market and their prt level apparel requirements can be best and most competitively met with by China because of economies of scale.
Further, we need not forget that ASEAN countries not only have substantially smaller markets, but also have better infrastructure and lower transaction costs and therefore production costs, rendering our dream of having a field day in their market sour.
On the other hand, by entering into trade agreement with such countries which are already our formidable competitors and allowing them duty-free import into India would squeeze Indian market and even could replace the indigenous production which has been our strength in times of crisis like global downturn. Soon, we would be deprived of our indigenous strength which will stand eroded on account of presence of duty-free products from all our trade partners. This may be particularly true in case of textiles and garments, where we are facing tough competition from some of our neighbours and the members of ASEAN group of countries. If their products are to be allowed duty-free entry, it can cause considerable damage to our export and domestic market, threatening jobs of millions of workers, who rank o only next to agriculture, sector-wise. The Government will do well by examining all present and future trade agreements that it is pursuing at present in the context of sensitive areas like textiles and garments.
We seem to be excited or even obsessed by the sheer number of heads in the countries we are entering into trade agreement with, which not only have the distinct advantage of price and quality over our products, but also are an open arena for widest and wildest competition from all those who have earlier entered into any trade agreement with the countries, we are proposing to partner with.
Seen in this context, our proposed trade agreements with the EU, the US and the Mercosur could be considered as economically good propositions where we do have the genuine possibility of reaching out to important and prosperous (even if these are temporarily down, but not out) markets.